Matthew Yglesias writes:
Real interest rates are negative: Taxing is more costly than borrowing.: A remarkable Damon Linker article about the "worrying rise of reckless liberal pundits"… [is] the very worst kind of common sense political pundity…. I have previously suggested that with real interest rates negative it makes more sense to finance government activities with borrowing than with taxes. Linker finds this "fanciful" but can't quite say what's fanciful about it….
Let's break this down. You're the mayor of a city…. [Y]ou need to buy new [police cars]. You have two options… you can borrow the money and pay the bill ten years from now, or you can raise taxes and pay right now. The case for paying later is pretty clear. In ten years' time your city's overall economic output will be higher so the burden of paying off the loan then will be lessened. On the other hand, the case for paying now is also pretty clear—lenders generally expect interest payments….
But wait! The city's accountants show up and point out that it's currently possible for the city to borrow at a negative real rate. Suddenly the interest costs are off the table as a reason to prefer paying sooner. So what's left? Nothing….
Linker then pivots to an entirely off-topic conclusion:
Entitlements will need to be means-tested and spending slashed… revenue cannot be conjured out of thin air…
Maybe so!… [But] under any scenario the government is going to be spending money in 2013. The question on the table was should we finance that spending with taxes or should be finance it with borrowing. My view is that with real interest rates below zero, it makes sense to tax less and borrow more. This has literally no relationship to my view about the appropriate level of future government spending.
Why oh why can't we have a better press corps?
Can anybody point me to anything good written by Damon Linker, contributing editor of the New Republic, in which he has done his homework--rather than simply listened to a "Daily Show" episode--before writing?